Tuesday, August 30, 2016

On August 29, 2016, an FCC
spokesman stated that the Commission will not appeal the Sixth Circuit’s
decision to reverse the FCC’s 2015 Municipal
Broadband Preemption Order. According to the spokesman, an appeal “would
not be the best use of the Commission resources.” As I stated in a blog
last week, the FCC’s Order and the subsequent court case was a waste of
taxpayer resources and should have been avoided. While it is unfortunate that
the FCC wasted as many resources as it did, at least the issue is over and the
FCC can now focus on proceedings that will bring benefits to consumers.

Friday, August 26, 2016

Earlier this month,
the Cato Institute published the 2016 edition of “Freedom in the 50
States,”
coauthored by William Ruger and Jason Sorens. This study ranks each state with
regard to its overall “freedom” by measuring the restrictions the state has
placed on both personal and economic choices. For the purposes of this blog, I
will use the authors’ analysis to discuss Maryland’s
rankings
among a number of economic freedom categories.

I note at the
outset that since taking office in January 2015 Governor Larry Hogan has taken
some actions, and proposed others not adopted by the Maryland General Assembly,
which have and would improve Maryland’s ranking. But there is still much more
work to be done.

Overall, Maryland
is in the bottom five states in the “freedom” index, ranking 46th in
the country. Maryland also happens to rank 46th in terms of “economic
freedom.” This low ranking is attributable to the state’s combination of high
taxes rates, unnecessary regulations, and burdensome occupational and business licenses
that create barriers regarding how Maryland’s citizens can earn and spend
money. Maryland’s regulatory and fiscal policies are the biggest reason for why
its overall ranking is so low.

Free State Foundation
President Randolph May and I have criticized Maryland’s regulatory policies and
discussed areas where the state could improve in a January 2016 Perspectives from FSF Scholars entitled
“Achieving
Efficient Government and Regulatory Reform in Maryland.” In the “Freedom
in the 50 States” study, regulatory freedom measures a number of different
specific categories, including land-use requirements, labor market restrictions,
and occupational licensing. Maryland ranks 49th in regulatory
freedom. Here are some more specific findings relating to Maryland’s poor
showing:

Land-use freedom
measures restrictions on rent control, how much a state uses eminent domain,
and the number of permits and zoning regulations that burden property owners.
Maryland has very restrictive land-use regulations, ranking it 48th
in terms of land-use freedom. The authors state that if Maryland were to
eliminate rent control, by itself, the state would move from 49th to
45th in terms of regulatory freedom.

Maryland ranks 49th
with regard to occupational freedom. As I discussed in a July 2015 blog, Maryland has overly
restrictive occupational licensing requirements. These regulatory requirements burden
entrepreneurial activity and create barriers for upward mobility, especially
for low-income citizens.

“Fiscal freedom”
is another important component of economic freedom. Maryland ranks 34th
in the fiscal freedom index, which measures the tax burden placed on state
residents, the amount of state spending, the amount of state debt, and the
percentage of employment in the public sector. The authors say Maryland’s overall
tax burden is average among the states, which is a more positive assessment than
the most recent report
from the Tax Foundation. However, the authors do say that state-level taxes
have risen steadily over the last six years. One of Maryland’s most problematic
components of its fiscal freedom ranking is its excessive business subsidies.
The authors state that if Maryland were to end all business subsidies and cut
taxes equivalently, its fiscal freedom ranking would rise from 34th
to 24th.

For years, FSF
scholars often have discussed Maryland’s burdensome tax and regulatory policies
and the impact those policies may have on businesses and residents considering leaving
the state. The state and local economy is one of the main reasons individuals
migrate among states. According the study, Maryland had a net migration rate
(NMR) of -2.4% in 2014. All of Maryland’s neighboring states not only rank
higher overall, but also have a more favorable NMR. Delaware ranks 31st
with an NMR of 7.6%, Pennsylvania ranks 26th with an NMR of -1%,
Virginia ranks 21st with an NMR of 2.4%, and West Virginia ranks 39th
with an NMR of 0.9%. While high tax rates and unnecessary regulations may not
be the only reason why Maryland experienced a net population loss, reducing tax
rates and eliminating burdensome regulations could incentivize individuals and
businesses to remain in the state.

Governor Larry
Hogan has done a commendable job since taking office in January 2015 to take
actions that move Maryland in a favorable direction. He has worked to lower licensing
fees, transportation tolls, and tax rates. Governor Hogan also established a
Regulatory Reform
Committee
with the mission of eliminating unnecessary regulations and streamlining
administrative processes. But, as Maryland’s poor showing in Cato’s “Freedom”
index indicates, there is much more work to be done, and the Maryland
legislature needs to act in way that is consistent with improving the state’s “freedom”
ranking.

Thursday, August 25, 2016

On August 10,
2016, the U.S. Court of Appeals for the Sixth Circuit reversed the Federal
Communications Commission's (FCC) 2015 Municipal
Broadband Preemption Order, which attempted to override state laws in
North Carolina and Tennessee that restricted the use of municipal broadband. FSF
scholars have declared that the FCC’s order was one of the most far-reaching
and far-fetched attempted power grabs in the agency’s history. FSF scholars
also have stated that the language of Section 706 of the Communications Act to
remove barriers to infrastructure investment and to "promote competition
in the telecommunications market" provides no clear statement of intent to
authorize preemption of state laws concerning broadband networks owned by
municipalities.

In an August 12
blog in The Federalist Society
entitled “Sixth
Circuit Ruling Stops FCC’s Unlawful Municipal Broadband Preemption,” FSF
President Randolph May and Senior Fellow Seth Cooper recapped the Sixth Circuit’s
decision to use the Supreme Court’s precedent in Nixon v. Missouri Municipal League (2004). The legal reasoning
behind the decision in Tennessee
v. FCC (2016) is simple and obvious: “The force of the clear statement
rule… makes the intent of Congress clear in this case: § 706 does not authorize
the preemption attempted by the FCC.” Of course, FSF scholars warned the FCC of
its misguided and fictional legal authority in their August
2014 comments.

On August 17,
2016, Seth Cooper published an article in The
Washington Times entitled “Rescuing
Broadband from Government Interference.” From a legal perspective, Mr.
Cooper says that even students in Constitutional Law 101 understand that local
governments are political subdivisions of their states, and therefore they would
recognize that the FCC has no authority to preempt state laws. And from an
economic perspective, Mr. Cooper explains why municipal broadband harms
consumers and taxpayers. He says that government should not compete against the
market providers they regulate, because the dual role of competitor and regulator
creates favoritism over private providers in granting permits and licenses.
Such favoritism causes uncertainty among market providers and likely stifles private
investment, leading to fewer consumer benefits than what would occur in the
market absent a municipal broadband provider. Mr. Cooper also states that
municipal broadband projects often fail and local taxpayers end up covering the
multimillion-dollar bailouts, constraining the amount of money the local
government could spend on more valuable programs.

Whether from a
legal or economic perspective, the Sixth Circuit’s decision to reverse the FCC’s
order creates a framework for efficient policy. At the Free State Foundation’s March
2016 Telecom Policy Conference entitled “The
FCC and the Rule of Law,” Daniel Lyons, a member of FSF’s Board of Academic
Advisors, said that if the FCC had a better understanding of the rule of law,
the Municipal Broadband Preemption Order
and the subsequent Tennessee v. FCC court
case could have been avoided:

One thing I found interesting, relating back to the
earlier conversation, is the way rule of law issues are playing out in the
municipal broadband proceeding. One of the things that's long given me comfort
is the fact that the Chairman is in the good hands of Ambassador Verveer. I
always get a little bit nervous when nonlawyers -- and I say this as a lawyer,
right? -- are in the chairman roles because I'm much more concerned that the
agency gets driven by questions about policy than about questions about rule of
law. And they will say, "Well, the courts take care of the rule of law
issue." I think the muni broadband example is a good one. I think the
Chairman has a pretty good idea of where the law ought to go in this area.
Unfortunately, the path that he's taken is pretty clearly foreclosed by the Nixon vs. Missouri Municipal League
precedent. And it becomes very difficult to drive the agency in that direction
and force the legal side of the house to engage in the types of really legal
gymnastics that they had to engage in before the Sixth Circuit last week in
order to try to defend that position. Ultimately, the Sixth Circuit is almost
certainly going to strike that down. The question it raises from a rule of law
perspective is whether that should've happened in-house long before. I mean
with all due respect.

Daniel Lyons is
not the only expert who predicted the Sixth Circuit’s reversal of the FCC’s
order. At the same conference in a separate panel called “Perspectives
on Hot-Topic Communications Issues,” Brad Ramsay, General Counsel/Director
of the Policy Department at the National Association of Regulatory Utility
Commissioners (NARUC), issued his opinion regarding the action the Court might
take:

I still would be very surprised if any three judges or
any circuit would want to uphold the FCC in these circumstances given the
precedent from the Supreme Court in Nixon.
I looked at this case. This is basically the FCC telling the state whether or
not it's going to get into the broadband business and where. The problem with
the FCC's analysis is that it treats the state and the state organs as two
separate entities. Basically it says, "State, this subdivision of the
state is not really part of you, it's an independent entity and you can't tell
it what to do." It's completely flawed analysis… So I'll be very surprised
if this gets upheld at the Sixth Circuit. And if it does, I predict, with as
much confidence as I have in the federal judiciary, which, granted, is not a
lot, it'll go to the Supreme Court and get reversed if they do.

FSF scholars and
prominent experts in this field frequently articulated why the FCC’s Municipal Broadband Preemption Order was
unlawful and should have been avoided. It is unfortunate that valuable resources
(time and taxpayer money) were wasted during the FCC’s proceeding and the
subsequent court case. On the hand, hopefully the Sixth Circuit’s decision has halted
the FCC’s attempts to preempt state laws.

Thursday, August 18, 2016

Today, T-Mobile
and Sprint
both announced new unlimited mobile data plans starting at $70 a month and $100
a month, respectively. Some people may say that these so-called “unlimited”
plans have limits, but that should not be the storyline. Instead, the
storyline should be that competition and innovation among mobile providers enables
consumers to have access to more choices as they continue to demand more and
more mobile data. The fact that two
major mobile providers announced similar innovative service offerings on the same day
is a clear sign of robust competition in the mobile broadband market.

In
January 2016 the FCC adopted a Notice of Proposed
Rulemaking
(NPRM) purporting to “unlock the box.” But in actuality, the FCC’s NPRM would unlock
copyright protections by mandating third-party video device maker access to
valuable content and subscriber information. This access mandate would result
in widespread violations of licensing agreements negotiated between copyright
owners and video service providers. The truth is that the NPRM’s strictures
would stifle the video market’s innovative
transition
from set-top boxes to applications.

Concerns
over the unintended consequences of the proposed rules have been raised by a
majority of the Commission. Two of the FCC Commissioners – Ajit Pai and Michael
O’Rielly – voted against the NPRM. They have cited increases in
the costs of video innovation and violations of intellectual property rights
that would result from the NPRM’s adoption. Commissioner Jessica Rosenworcel – who
voted for the adoption of the NPRM – has also publicly acknowledged her
concerns with the proposal. In June, Commissioner Rosenworcel, said: “Kudos to the Chairman
for kicking off this conversation but it has become clear the original proposal
has real flaws and, as I have suggested before, is too complicated. We need to
find another way forward.”

The current proposal is irretrievably flawed. As
FSF Senior Fellow Seth Cooper discussed in a February
2016 blog, the FCC’s proposal would undermine negotiated contractual
rights to transmit copyrighted video to subscribers. This is because video
service providers would be forced to make licensed video content available to
third-party device makers who never contracted with copyright owners. Copyright
owners would have no ability to enforce their negotiated licensing terms
against third-party devices makers they never contracted with. Nor would the
FCC have legal authority to police NPRM-enabled copyright violations by third-party
device makers. Significantly, on August 3, 2016, the Copyright Office sent
a letter to members of Congress describing in detail the
copyright law problems posed by the FCC’s NPRM.

Although this by-product of the FCC’s proposal
has not received as much attention as others, copyright violations that inevitably
would result from the NPRM almost certainly will harm minority and diverse
content creators. In a March
2016 letter to the FCC, a number of
organizations representing minority consumers and diverse ethnicities,
including the Multicultural Media, Telecom and Internet (MMTC), League of
United Latin American Citizens (LULAC), and the National Association for the
Advancement of Colored People (NAACP),
asked the Commission to study the effects the proposal would have on “diversity
and inclusion.” In April, MMTC submitted
comments to the FCC stating: “[T]he unintended
consequences of the FCC’s choice would harm diverse programmers and content
creators by violating their copyright and licensing agreements and existing
distribution arrangements with MVPDs, the lifeblood of their very existence.” Indeed, Commissioner Rosenworcel has publicly
recognized the threat of harm that NPRM-induced copyright violations would pose
to minority and diverse content creators.

To be sure, all content creators would be harmed
by this proposal because it will enable third-party device makers to repackage
content and rearrange channel lineups and tier placements. Copyright owners’ reduced
control over the use of their video content will correspond with reduced financial
returns. The NPRM will also cause harm by enabling third-party device makers to
sell targeted advertisements to consumers based on their viewing habits. Ad
revenues reaped by third-party device makers would be appropriated from the
owners of copyrighted video content. However, minority and diverse content
creators could be harmed disproportionately because they often sell their
content and corresponding ads to specific audiences that are smaller in size.
This loss in ad revenues will have the effect of discouraging innovation and
creativity among minorities and other smaller, diverse audiences.

It is encouraging to see a majority of the FCC
Commissioners raise concerns about the costs levied on minority programmers by
the agency’s set-top box proposal. But the proposal is hopelessly beyond
repair. FSF President Randolph May and Senior Fellow Seth Cooper rightly have
called for the termination of what they denominated the “Enable
Copyright Violations” proposal. (Also, see FSF’s comments and reply
comments regarding this proceeding.)

Impairment of contracts for transmitting copyrighted
video content lies at the core of the FCC’s set-top box proposal. No modest
revisions can fix a rulemaking proposal that so clearly and fundamentally
violates copyright protections. Hopefully, the Commissioners’ recognition of these
copyright concerns will lead them to terminate the current set-top box proceeding.
If the Commission wishes to explore whether any new regulations are necessary
and desirable in light of the rapidly changing video marketplace, including
almost weekly new developments relating to navigation devices, then it should
issue a Notice of Inquiry to gather up-to-date information.

Wednesday, August 10, 2016

Today, Hal Singer,
a principal at Economists Incorporated, published
an op-ed in Forbes discussing how
Internet service providers (ISPs) are investing in capital outside of the
broadband infrastructure market due to the FCC’s 2015 Open
Internet Order. Mr. Singer shows that AT&T, Verizon, and Sprint have
all decreased their capital expenditures by $1.9 billion, $1.2 billion, and
$1.5 billion, respectively, from the first half of 2014 (before the FCC adopted the Open Internet Order) to the first half of 2016.

Mr. Singer also says
that other FCC proposals are discouraging ISPs from investing broadband infrastructure.
The proposal
to pursue price controls for business data services would stifle the
deployment of fiber. The FCC’s privacy
NPRM would harm ISPs’ ability to sell targeted advertisements and offer “free”
services to consumers. (See my
Perspectives from FSF Scholars
from earlier this month.) And the FCC’s set-top
box NPRM would create barriers for ISPs to integrate themselves into the
pay-TV market. Mr. Singer makes a convincing case that the FCC’s assault on
broadband (he calls it “The Wheeler Tax”) is pushing ISPs out of the broadband
infrastructure market and into the edge market. Do not be surprised if ISPs
continue to purchase edge providers, like we have seen with Verizon’s recent
purchases of Yahoo and AOL.

Monday, August 08, 2016

According
to the U.S. Copyright Office’s August 3, 2016, letter to members of Congress,
the Federal Communications Commission’s mislabeled “Unlock the Box” proposed
regulation of video devices and apps conflicts with copyright law protections. It’s
now clear the FCC’s proposal might more aptly be named the “Enable Copyright Violations”
proposal.

Concerns
that the FCC’s proposal would undermine the exclusive rights of video
programmers to license and control the use of their copyrighted content have
been widely known. Now, the Copyright Office has declared that the FCC’s
proposed rules “appear to inappropriately restrict copyright owners’ exclusive
right to authorize parties of their
choosing to publicly perform, display, reproduce and distribute their works
according to agreed conditions, and to seek remuneration for additional uses of
their works.” The Copyright Office, with acknowledged copyright law expertise
and charged by law with advising Congress concerning interpretation of the
nation’s copyright laws, urged that “any revised approach to be taken by the
FCC should be crafted to preserve copyright owners’ exclusive right under
copyright law to authorize… the ways in which their works are made available in
the marketplace.”

Predictably,
some supporters of the FCC’s proposal have tried to put their own negative
slant on the Copyright Office’s letter. For instance, the Copyright Office’s
analysis was attacked with word-twisting and non-starter fair use arguments by Public
Knowledge. In our view, the Copyright Office explained, in a careful and
compelling fashion, why the FCC’s proposal would undermine the exclusive rights
of copyright holders and why the proposal is contrary to federal copyright law.

The
Copyright Office’s concerns about the FCC’s proposed improper curtailment of video
programmers’ copyrights come from a straightforward reading of the law. The
crucial provision concerning the rights of copyright holders to authorize
reproduction, transmission, and public performance of their intellectual
property is contained in Section 106 of the Copyright Act. As the Copyright
Office put it: “The rights protected by the Copyright Act are ‘exclusive’ to
the copyright owner, meaning that the copyright owner generally has full
control as to whether or how to exploit his or her work, including by entering
into licensing agreements.”

Public
Knowledge’s press release incorrectly insinuates that the Copyright Office misrepresented
the FCC proposal’s mandates. The Copyright Office, Public Knowledge claims,
believes the FCC would mandate that copyright owners give away outright their
video programming “for free exploitation by third-party devices.” Obviously, such
overheated rhetoric is meant to put the Copyright Office letter in the worst
possible frame. But a fair reading of the letter shows the Copyright Office understands
the distinction between the Commission’s stated intent behind “Unlock the Box”
and the actual practical effect of its proposal. Acknowledging that “[t]he FCC
has stated that the Proposed Rule is not intended to negate these private
contractual arrangements,” the Copyright Office stated the obvious truth: “[I]t
is not clear how the FCC would prevent such an outcome under the Proposed Rule,
for it appears to obligate MVPDs to deliver licensed works to third parties
that could then unfairly exploit the works in ways that would be contrary to
the essential conditions upon which the works were originally licensed.”

While
the FCC proposal may not affirmatively mandate
repackaging of copyrighted video content by third parties who sign no licensing
agreements and pay no royalties to the copyright holders, it does mandate that copyrighted video content
be made available to third-party device makers – who are unbound by licensing
terms. In such circumstances, as the Copyright Office sets forth in
considerable detail, neither contract law nor Commission regulations will provide
copyright owners a means for enforcing licensing terms of use. This means third-party
device makers, among other things, could overlay ads, rearrange channel
lineups, ignore “windowing” or “tiering” agreements, or insert new video
content without consent and without compensation being paid to the copyright
holders. This would be an unavoidable by-product of mandating access to
copyrighted content by third-party devices while leaving copyright holders
without legal recourse.

Public
Knowledge’s press release also engages in plenty of misdirected rhetoric on
fair use. It misleadingly claims that the Copyright Office wants video service
providers and video programmers to disregard fair use rights. There is no
reason to think this is so, and the criticism is hard to understand. The
Copyright Office’s letter states that video service providers and video
programmers avoid uncertainties regarding fair use by contracting around it
through licensing agreements. This is hardly remarkable. Parties to commercial
agreements contract away their rights all the time.

It
goes without saying that licensing agreements between video service providers
and video programmers don’t contract away fair use rights of video subscribers.
To briefly illustrate from another context: Suppose a major publisher enters
into an agreement with a bookseller for an exclusive promotion and sales effort
for a blockbuster novel. The publisher and bookseller could contract around
fair use, whereby the bookseller gives up any fair use claims it may have
regarding what it might say about the novel in promotional materials or how it
might display the novel. But the parties’ agreement would in no way waive the
fair use rights of the novel’s subsequent readers and reviewers – and this is
the point that Public Knowledge misunderstands or ignores.

In
any case, the Copyright Office’s analysis is focused on licensing restrictions
directly affecting the fair use rights of third-party devices – not the fair
use rights of video subscribers. Discussing the Commission’s proposal, the
Copyright Office acknowledged different fair use factors may be present with
respect to video subscribers. Its letter even compared video subscribers to
non-infringing private home users of VCR devices in Sony v. Universal City Studios (1984). So it’s silly to claim, as
Public Knowledge’s press release does, that “[w]hat the Copyright Office
advocates is encouraging distributors to negotiate away their consumers’ rights
without those consumers’ consent.”

The
copyright problems plaguing the FCC’s proposal were explained in an FSF
blog post back in February. Public
comments and reply
comments filed by us in the FCC’s proceeding again explained that the
proposal would undermine the exclusive rights of copyright holders in video programming.
While we believe the FCC’s more aptly named “Enable Copyright Violations” proposal
is misguided in a handful of respects, the proposal’s clash with federal
copyright law is one of its most obvious flaws.

The
Copyright Office, charged by law with advising Congress on copyright issues and
interpretations of the nation’s copyright laws, has now articulated the
copyright problems in a manner that the Commission should not ignore:

In its most
basic form, the rule contemplated by the FCC would seem to take a valuable
good—bundled video programming created through private effort and agreement
under protections of the Copyright Act—and deliver it to third parties who are
not in privity with the copyright owners, but who may nevertheless exploit the
content for profit. Under the Proposed Rule, this would be accomplished without
compensation to the creators or licensees of the copyrighted programming, and
without requiring the third party to adhere to agreed-upon license terms. … As
a result, it appears inevitable that many negotiated conditions upon which
copyright owners license their works to MVPDs would not be honored under the
Proposed Rule.

The
FCC’s disregard of the exclusive rights of copyright owners is serious enough
that the Commission should abandon its proposal. If it wishes to move forward
with any new regulation at all – although in light of marketplace and
technological developments, we submit none is needed – the Commission should explore
ways of promoting competition in the video device market that do not enable
violations of copyright law or undermine copyright licensing agreements.

Barring
this, the Commission should be forthright enough to stop calling its proposal “Unlock
the Box” and instead call it the “Enable Copyright Violations” proposal.

Friday, August 05, 2016

You probably saw
the dismal figures for business investment released late last month in
conjunction with the government’s most recent report on GDP, which itself was
dismal. If you didn’t take note, you should have.

In reporting on the latest government data, the lead in
the July 29, 2016, Wall
Street Journal story
declared that “declining business investment is hobbling an already sluggish U.S.
expansion.” According to the WSJ, Gregory
Daco, an economist at Oxford Economics, stated, “weakness in business
investment is an important and lingering growth constraint.” MarketWatch’s
July 29 story gloomily declared:
“Businesses cut fixed investment by 3.2%, the biggest drop since 2009….Nor do
companies show any sign they soon plan to ramp up investment, one of the three
main pillars of economic growth.” Many other reports were to the same effect.

In the face
of well-documented declining capital investment by businesses, now hovering
near all-time lows, actions by the Federal Communications Commission that
discourage further investment are far from harmless to the nation’s economy or
to its consumers. It is surprising that in such a persistent, low-growth,
low-investment economic environment, the agency continues to propose policies
that discourage further investment by Internet service providers, despite the
fact that from 2000 – 2015, ISPs had been leaders in capital investment in the
United States.

Economist
Hal Singer has shown in a report that, for the twelve largest ISPs,
capital expenditures declined by 0.4% from December 31, 2014 through December
31, 2015. This represents a reduction in investment of about $250 million
year-over-year. While not suggesting that the FCC’s decision in February 2015
to classify ISPs as common carriers subject to public utility-like regulation is
solely responsible for the decline in ISP investment, Mr. Singer does say:
“[W]hen investment theory is corroborated by evidence, as it is here,
it is reasonable to infer that reclassification of ISPs as Title II common
carriers was not a good thing for investment.” And according to Mr. Singer’s
very recent calculations,
early (but still incomplete) data for the first six months of this years
indicate that the decline in investment by ISPs is likely to continue.

Unfortunately,
in addition to the FCC’s Title II classification determination, the Commission’s
proposed action in the “special access” (now renamed “Business Data Services”
or “BDS”) proceeding, if adopted, likely will further deter capital investment
by broadband services providers. The reason is simple – and widely-acknowledged
by regulatory economists: Rate regulation mandating that incumbent telephone
company providers give competitors access to their facilities at below-market
rates discourages investment in facilities by both incumbent providers and new entrants. This depressive
investment effect is the likely result of any Commission action in the BDS
proceeding that forces the telephone companies to reduce the rates for network
inputs sought by competitors.

Thus, for
example, it should not be surprising that cable companies, new facilities-based
entrants trying to gain a further foothold in the BDS market, oppose Commission
actions that will force incumbent telephone company rate reductions. Lower
incumbent rates for BDS services and inputs will only make it more difficult
for cable operators and other non-incumbent competitors to compete – thereby
discouraging capital expenditures for new network facilities by competitors and
new entrants and incumbents alike.

The
Commission would do well to consider the separate opinion of Justice Stephen
Breyer in the Supreme Court’s landmark AT&T v. Iowa Utilities Board (1999) decision criticizing the FCC’s Unbundling
Network Element (UNE) rules mandating excessive sharing of incumbents’ network
facilities at below-market regulated rates. (Remember the FCC’s years-long UNE
fiasco in which the FCC for years artificially propped up hundreds of
non-facilities-based “competitors”? Or, like many, perhaps you’ve been trying
to forget!)

Here is
what Justice Breyer had to say:

“Even the simplest kind of compelled sharing, say,
requiring a railroad to share bridges, tunnels, or track, means that someone
must oversee the terms and conditions of that sharing. Moreover, a sharing
requirement may diminish the original owner’s incentive to keep up or to
improve the property by depriving the owner of the fruits of value-creating
investment, research, or labor.”

“Nor can one guarantee that firms will undertake the
investment necessary to produce complex technological innovations knowing that
any competitive advantage deriving from those innovations will be dissipated by
the sharing requirement.”

“It is in the unshared, not in the shared, portions
of the enterprise that meaningful competition would likely emerge. Rules that
force firms to share every resource or element of a business would create, not
competition, but pervasive regulation, for the regulators, not the marketplace,
would set the relevant terms.”

I wonder why it is so difficult for the Commission to acknowledge
that, in a marketplace environment such as the BDS market where meaningful competition
already exists in most locations and potential competition looms in the others,
that forced sharing of network infrastructure inputs at regulated rates
actually discourages capital investment and facilities-based competition?

I can’t answer that question. But I do know
this: At a time when capital investment by American businesses is declining,
FCC actions that exacerbate that decline in investment – even if it is just a
matter of slowing the rate of growth – are not good for our nation’s economy or
its consumers.